Medicaid for all?

“As More Join Medicaid, Health Systems Feel Strain.” That’s the striking and counterintuitive headline on the front page of the Wall Street Journal. The Affordable Care Act is injecting billions upon billions of dollars to provide Medicaid to previously uninsured people. More money should help healthcare providers’ finances, not hurt them. So what’s going on?

To summarize, Medicaid reimburses for services at only about half the rate of what commercial health plans pay. A doctor in the article receives just $80 to see a Medicaid patient compared to $160 for a commercial patient. That’s typical.

If all providers had the same mix of patients, this wouldn’t be such a problem. Well-reimbursed commercial patients would make up for poorly paid Medicaid patients. But in today’s world, that’s not how it works.

Some health systems concentrate their resources in wealthy communities with lots of commercial patients. Other providers end up with a much higher share of Medicaid patients and enter a vicious cycle that depresses their earnings, makes it hard for them to compete, and leads eventually to financial distress. To make matters worse, some of these “Medicaid” hospitals receive lower rates from commercial plans than fellow hospitals who avoid Medicaid. This is the scenario in Massachusetts (see Healthcare Inequality in Massachusetts: Breaking the Vicious Cycle) and elsewhere.

Still, I don’t accept the Journal’s implicit conclusion that the Medicaid expansion is bad for hospitals and physicians overall. For any given patient, a provider would much rather get reimbursed by Medicaid than try to collect from an uninsured patient. And since the U.S. spends double per person what other rich countries spend on healthcare, even stingy Medicaid budgets should suffice.

It’s notable that the Journal article says next to nothing about solutions to the problem. All of the examples they cite assume a fee-for-service system. The very first example –Medicaid paying for robotic surgery for a patient– reminds me of the U.S. system’s penchant for high-tech interventions that are expensive but not necessarily better.

Solutions are at hand, if we would be bold enough to embrace them:

• Reduce disparities in reimbursement rates. Is there a defensible rationale for paying different rates for Medicare and Medicaid beneficiaries? For that matter, why should commercial plans pay a different rate?
• Consider payer mix when setting reimbursement rates. If we’re stuck with differential rates between Medicaid and commercial –which we probably are– we should at least not penalize providers who take care of a lot of Medicaid patients. Their commercial and/or Medicaid rates should be adjusted so they don’t have to turn away Medicaid patients to survive.
• Shift to risk-based payment models. Fee-for-service is wasteful and provides incentives for volume and high acuity care rather than value. Why not encourage the use of Medicaid Accountable Care Organizations and other risk-bearing approaches that give providers responsibility for costs and quality?

The sooner we have a serious discussion about Medicaid policy in this country the better.

David Williams blogs regularly at the Health Business Blog.